You're Hoarse from Explaining to Your Supervisor That the Cost

question 26

Multiple Choice

You're hoarse from explaining to your supervisor that the cost, if any, of hedging exchange rate risk can be thought of as an insurance premium to avoid surprises. What is the cost of hedging a 2 million euro commitment if the spot rate is €1.6/$, the forward rate is €1.55/$, and the expected spot rate at the end of the hedge is €1.6/$?

• A) $0
• B) $25,000
• C) $40,323
• D)$36,667

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